Personal Finances During a Recession
By: Linda Jacob, AFC®, CFP®
When the US is not in a recession, consumer confidence is high and people are spending money and enjoying the “good life”. But what happens when a recession hits? The biggest impact of a recession is employment loss. As employers start to make cuts in order to survive the economic downturn, more and more people will lose their jobs. If they aren’t losing their job, they are still dealing with the rising cost of just about everything and/or the loss of value to their homes and investments.
So how should you prepare for a recession? Start by making a budget and work on cutting your expenses. Cut back on all the wants and focus only on the needs. Take a hard look at what is actually necessary and what you can do without. These may seem like hard choices, but consider the consequences of not making them.
Any extra money you can come up with should go into your Emergency Savings. Of course, the best time to save for a recession is BEFORE a recession, but every little bit will help. The U.S. has experienced a recession 17 times in the last 100 years which is an average of every six years. According to the National Bureau of Economic Research, a recession can last from 6 months to three and half years. Best case scenario is a 9-12 month reserve of expenses in your Emergency account.
The biggest mistake you can make is thinking that a recession won’t affect you. None of us saw the pandemic coming, but now we have millions of people out of work who are struggling to make ends meet. Being prepared is a choice, and one that you can make today.